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SUN F&C unveils India's first overseas fund

Indian retail investors, long limited to buying local assets, can now pick and choose from US treasuries, Freddie Mac reference notes and British gilts with the launching of the country's first overseas fund.

SUN F&C Asset Management (I) Pvt Ltd on Thursday unveiled a plan with an option to invest in overseas fixed income instruments.

SUN F&C's is the first such plan since the recent Budget in which the government allowed mutual funds to invest up to four per cent of their portfolio -- with a cap of $50 million -- in top grade foreign debt of countries with freely convertible currencies.

Until then, India -- with its tight capital controls and partly convertible rupee -- only selectively allowed some entities to invest in overseas financial markets.

The move provides Indian investors a wider choice and better opportunity to diversify risk.

Risk containment, in fact, is the plan's primary objective, Sun F&C's CEO Nikhil Khattau, told a news conference.

"The question I get is what kind of returns can we get. But that is not the primary reason to invest abroad," Khattau said.

"If I can diversify my portfolio to remove a single country, single market, single currency risk, my risk-adjusted return can be significantly higher."

Sun F&C will initially invest in US and British instruments maturing between one and three years with technical assistance from Britain's F&C group of which it is a part.

BENEFITS

Khattau said investing in different markets helped hedge against risks arising from economic cycles.

"The assumption is not every country in the world is going to be at the same point on the economic curve," Khattau said.

"When the Indian economy picks up, the United States or United Kingdom may not be at the same point, so you won't see interest rates changing at the same time across the world."

The fund also helped hedge against the risk of a market moving one way due to developments such as political crises.

The rupee's tendency to weaken also benefited such investors, though, when needed, the fund will hedge the exchange rate risk, he said.

Moreover, highly developed and liquid markets such as the United States and United Kingdom offered a wide choice of investment options with a lower default risk, Khattau said.

The move provides an outlet for surplus funds and such transactions can be reversed in the face of capital flight, he said.

SUN F&C, which manages around Rs 5 billion ($102 million) of domestic funds, plans to raise another billion rupees through the new plan -- including 170 million through the international investment option.

The new plan includes options for varying maturities apart from the overseas investment option.

By end-December, SUN F&C sees itself managing local assets worth Rs 10-12 billion in addition to offshore assets.

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